From Mining to Dining

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According to the World Bank, the global population is expected to reach 8.2 billion by 2030, a significant increase from its current level of 7 billion. Even more remarkable is the exponential growth in the global middle class, most of which will emerge from Asia.   

There are currently around 2 billion people in the global middle class, half of which live in Europe and North America, and only one-third in Asia. But by 2030, according to Reuters, the global middle class will grow to 4.9 billion – with two thirds living in Asia.

There is no doubt that the Asian middle class will be the key driver of future global consumption, for a host of products like cars, food and housing, and services like education, healthcare and tourism.  It is predicted that by 2030, Asia will account for 54% of the world’s total consumer spending.

Driving this growth is the world’s fastest growing and most highly populated country – China. By 2030, China’s middle class will reach one billion, nearly 70% of its projected population. Increasing wealth will also match this exponential growth of the middle class – it is predicted that by 2020, the disposable income level of China’s urban consumers will nearly reach that of South Korea’s level.

From bicycles to BMWs

With rising incomes, increasing private wealth and a higher standard of living, the Chinese middle class consumer will spend increasingly more by indulging in what they want rather than what they need. During the Communist years, people wished to own sanshengyixiang (三转一响) ‘three rounds and sound’- a wristwatch, bicycle, sewing machine and a radio. Today, China’s middle class aspire to own a Prada handbag, a BMW and a holiday overseas. To illustrate this, a study found that the number of Chinese households earning more than US$35,000 (considered to be the threshold to afford overseas travel) will nearly treble to 63 million by 2023.

As well as being wealthy, they are both aspirational and health conscious. Their tastes are evolving, demanding more variety in their diets and becoming increasingly aware of the importance of protein.

Everyone knows that rice has been a staple in Asian diets for centuries. Currently, 90% of the world’s rice is produced and consumed in Asia. However, recent studies confirm that as income levels rise in Asian countries, the consumption of rice (on a per capita basis) declines at a similar pace. Trends have shown that Chinese middle class consumers are now eating more foods derived from livestock and wheat, imported fresh fruits and vegetables and others which are higher in protein and energy. For example, Chinese beef-meat consumption is expected to increase from 5.13 million tonnes in 2000 to 7.96 million tonnes by 2020.

Changes in diet patterns can be attributed to a variety of factors. One of the fundamental backbones of Chinese culture is the importance of health. Food safety and best practices in production are becoming more transparent in China with many high profile food safety cases attracting damning media coverage. Chinese consumers are now becoming more and more anxious about the cleanliness and quality of their food and are looking overseas to purchase ‘safer’ food products.

The burgeoning Asian middle class is more willing than ever to pay top dollar for premium products for a combination of health, safety and lifestyle reasons. In addition, the status attached to eating imported foreign foods (particularly dining out) is a huge motivator to display their growing wealth and influence. According to a recent study, people in China spent more on average when eating out than Australians.

The changing face of Chinese consumers

The Chinese middle class is also defined by the emergence of two powerful groups of consumers - Generation 2 (G2) consumers and those from 2nd and 3rd tier cities. G2 consumers are typically born after the mid-80s, after Deng Xiaoping’s ‘opening up’ policies and are a product of China’s one-child policy. Their parents, having lived through economic austerity and years of shortage during the Cultural Revolution, have become dedicated to raise their children in relative abundance.  As a result, McKinsey research has found that G2 consumers are spending more than their predecessors and consider expensive products as better quality. Many of those who have spent time studying overseas have developed a taste for western-cuisines and products. Like previous generations, they still define success in terms of money, power and social status.

McKinsey also predicts that middle-class growth rates in tier 2 and 3 cities will be far greater than in tier 1 cities. By 2022, the share of the middle class population living in 2nd and 3rd tier cities is expected to double by 2022. Growth in tier 3 cities is set to be the most surprising, reaching a 30% share of the upper-middle-class population. These consumers are hungrier for imported products than their counterparts in Beijing and Shanghai because they do not have the same opportunities and avenues of access. Austrade research has found that online consumer spending in these cities is growing rapidly and in some cases, faster than in tier 1 cities.

By 2030, Australia will have nearly 4 billion people in our regional neighbourhood, with more money to pay for better quality healthcare services, tourism, housing, education and most importantly, food. Estimates suggest that, by 2050, Australia is poised to capture over A$1 trillion in food exports which, if managed properly, suggests that the agricultural sector represents the next boom for Australia’s economy. However, Australia faces enormous challenges in mobilising, energising and expanding an agricultural sector which has been neglected in recent times and which suffers from fragmentation, parochialism and a lack of investment. Also, simply relying on our ‘clean, green and safe’ reputation is not enough. Australia is increasingly transitioning from the ‘food bowl of Asia’ to the provider of premium products to China’s middle class. Understanding the new Chinese consumer and their changing diets and lifestyle is crucial if Australia wants to maintain their position as the ‘delicatessen of Asia’.